Environmental Initiatives

Our Recognition of Climate-related Issues

As shown in the Paris Agreement (2015), the IPCC Report (2018), and other documents, the progression of climate change is a scientific fact. Climate change progression is expected to enlarge climate disasters such as intensified typhoons and heavy rains, frequent heat waves and droughts, and the progressive rise of global sea levels. In addition, as part of a concerted effort to mitigate climate change, a global transition to socioeconomic decarbonization, such as setting a framework for reducing greenhouse gas emissions and tightening emission regulations, is expected to continue. In this way, the progression of climate change is a material challenge that will lead to dramatic changes in the natural environment and social structure and have a significant impact on our business.
Identifying, assessing, and managing the risks and opportunities posed by climate change and improving business resilience (both in the sense of toughness and ability to recover) are essential matters for FRI to secure stable profits over the medium to long term, and to aim for stable distribution of dividends and maximization of unitholder value.

Basic Policy concerning Climate Change

The Asset Management Company has established Guidelines for Addressing Climate Change in August 2021, which set forth a policy for addressing climate change-related risks and opportunities as well as initiatives concerning business and strategic resilienceto climate-related issues.
FRI and the Asset Management Company support the international goals set out in the Paris Agreement and will work continuously to reduce greenhouse gas emissions in order to contribute to the mitigation of climate change and will aim to carry out initiatives related to climate change based on these Guidelines.

Guidelines for Addressing Climate ChangePDF(162KB)

Support Expressed for the Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)

In January 2022, the Asset Management Company announced its support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD)(NOTE 1) with the aim of improving transparency by disclosing climate-related risks in line with the TCFD recommendations. It also participates in the TCFD Consortium(NOTE 2), in which many companies and organizations that support the TCFD in Japan participate.

TCFD

  • The TCFD was established by the Financial Stability Board (FSB) to consider how best to disclose climate-related information and how financial institutions should respond. It regards climate change as a serious risk to the global economy, and recommends that companies understand and disclose information on governance, strategy, risk management, and metrics and targets.
  • An organization established to discuss how to disclose and make use of climate-related information. Many companies and organizations that support the TCFD in Japan participate in this consortium.

Disclosure items recommended by the TCFD

Governance

To ensure the effectiveness of its sustainability initiatives, the Asset Management Company has established a Sustainability Committee chaired by the Chief Executive Officer (CEO) and Representative Director and comprising as members the Chief Investment Officer, Chief Financial Officer, and the Planning & Administrative Officer. It has also established a Sustainability Secretariat as a body to examine matters before their discussion in the Sustainability Committee.
The chief executive officer for climate-related issues is the Company’s Chief Executive Officer (CEO) and Representative Director, who has final decision-making authority on sustainability promotion, and the operating officer for climate-related issues is the Chief Investment Officer.
Matters related to climate change responses, such as identification and evaluation of the effects of climate change, management of risks and opportunities, progress in adaptation and mitigation initiatives, and setting of metrics and targets, are reported periodically to the chief executive officer for climate-related issues by the Sustainability Secretariat, and each agenda item is discussed and considered by the Sustainability Committee.
For details on the Sustainability Promotion System, please refer to Sustainability Promotion Framework.

Strategy

Identification of risks and opportunities

About once a year, the Asset Management Company identifies and assesses climate-related risks and opportunities pertaining to itself and FRI.

Projected future state Financial impact Timeline Identification of risks and opportunities
Transition Risks: Impact on business of transitioning society and the economy to low carbon and carbon-free
Policy and Legal
Regulatory tightening by promoting low carbon and decarbonization through policy
Introduction of carbon taxes, introduction of emissions trading systems Increase in carbon tax burdens, costs for purchase of carbon credits, and other costs 2030
(Mid term)
Risk
Stricter regulations on total building carbon emissions and energy conservation standards Occurrence of costs for retrofitting (modification of existing buildings to increase energy efficiency) 2030
(Mid term)
Risk
Mandatory and stricter disclosure and reporting systems relating to building energy efficiency assessments Occurrence of certification and other costs 2030
(Mid term)
Risk
Technology
New low-carbon and decarbonization technologies and their mainstreaming
Advances in and dissemination of energy-saving technology and ZEB (net zero energy building) technologies Lower utility expenses as a result of introduction of energy efficient equipment and ZEB conversion 2030
(Mid term)
Opportunity
Increase in costs with introducing energy efficient equipment and ZEB conversion 2030
(Mid term)
Risk
Market
Fluctuations in energy prices and changes in service demand, etc.

Reputation
Negative changes in reputation from stakeholders
Increased demand from investors and financial institutions regarding ESG factors and portfolio environmental performance in funding Diversification of financing methods and expansion of the breadth of investors 2030
(Mid term)
Opportunity
Increase in capital procurement costs 2030
(Mid term)
Risk
Selection of properties by tenants with an emphasis on environmental performance Higher rents at properties with high environment performance 2030
(Mid term)
Opportunity
Lower occupancy rates at properties with low environment performance 2030
(Mid term)
Risk
Selection of properties by tenants with an emphasis on disaster preparedness Higher rents at properties with low disaster risks 2030
(Mid term)
Opportunity
Lower occupancy rates at properties with high disaster risks 2030
(Mid term)
Risk
Physical Risks: Impact on business caused by changes from traditional climate patterns as climate change progresses
Acute
Caused by events
Increase in torrential rains, typhoons, floods, and storm surges Loss of sales opportunities due to suspension of public transportation, Loss of sales opportunities due to building flooding, Increase in repair costs and casualty insurance premiums due to building flooding 2050
(Long term)
Risk
Chronic
Stemming from long-term shifts in climate patterns
Rising sea levels Loss of sales opportunities due to building flooding, Increase in repair costs and casualty insurance premiums due to building flooding 2050
(Long term)
Risk
Increase in average temperature Increase in air conditioning costs 2050
(Long term)
Risk

Assessment of risks and opportunities

The identified risks and opportunities were assessed under the scenarios of a global temperature rise of 1.5°C and 4°C, taking into account uncertainties regarding the progress of climate change. We will take priority measures regarding those risks and opportunities with a large impact according to the assessment results.

Scenario analysis assumptions

The main scenarios are shown in the table below.

4°C scenario 1.5°C scenario
Transition Risks IEA (International Energy Agency) World Energy Outlook 2020 SPS IEA World Energy Outlook 2020 NZE2050
Physical Risks IPCC (Intergovernmental Panel on Climate Change) Fifth Assessment Report IPCC RCP8.5 IPCC Fifth Assessment Report IPCC RCP4.5

Financial impact of risks and opportunities based on the scenario analysis

4°C scenario 1.5°C scenario
Financial impact Identification of risks and opportunities Impact Impact
Transition Risks
Policy and Legal Increase in carbon tax burdens, costs for purchase of carbon credits, and other costs Risk Small Large
Occurrence of costs for retrofitting (modification of existing buildings to increase energy efficiency) Risk Medium Large
Occurrence of certification and other costs Risk Small Medium
Technology Lower utility expenses as a result of introduction of energy efficient equipment and ZEB conversion Opportunity Small Medium
Increase in costs with introducing energy efficient equipment and ZEB conversion Risk Medium Large
Market・
Reputation
Diversification of financing methods and expansion of the breadth of investors Opportunity Small Medium
Increase in capital procurement costs Risk Small Medium
Higher rents at properties with high environment performance Opportunity Medium Medium
Lower occupancy rates at properties with low environment performance Risk Medium Medium
Higher rents at properties with low disaster risks Opportunity Medium Small
Lower occupancy rates at properties with high disaster risks Risk Medium Small
Physical Risks
Acute Loss of sales opportunities due to suspension of public transportation, Loss of sales opportunities due to building flooding, Increase in repair costs and casualty insurance premiums due to building flooding Risk Medium Small
Chronic Loss of sales opportunities due to building flooding, Increase in repair costs and casualty insurance premiums due to building flooding Risk Medium Small
Increase in air conditioning costs Risk Medium Small

Initiatives to mitigate risks and realize opportunities

We are implementing the following initiatives to mitigate climate-related risks and realize climate-related opportunities:

  • Initiatives to reduce environmental burden (promotion of energy conservation, and initiatives to reduce CO2, save water, and reduce waste)
  • Implementation of building assessments for medium- to long-term decarbonization planning

Through these initiatives, we will enhance resilience to climate change and climate-related issues.

Risk Management

The Asset Management Company establishes countermeasures for material climate-related risks and opportunities discussed by the Sustainability Committee and considers them in terms of company-wide risk management programs in an effort to integrate the risk identification, assessment, and management processes.

Metrics and Targets

In its initiatives to mitigate risks or realize opportunities, the Asset Management Company defines KPIs and manages them through monitoring and target setting.
The targets and actual results for energy consumption, GHG emissions, water consumption, and waste emissions, which are set as KPIs for mitigating climate-related risks, can be seen in our collection of ESG Data.
We will flexibly review our goals and KPIs in response to social changes. With regard to targets for reducing GHG emissions, etc., we plan to thoroughly examine the results of scenario analysis and re-set long-term targets.

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